Visionary leadership comes in many shapes and sizes, and the commercial real estate industry is no exception. With that in mind, NREI's third annual “Ten to Watch” feature has corralled an eclectic mix of notable real estate executives onto the pages of this issue.

What do they all have in common? Coming off a year of tumultuous storms and frothy deal making, these talented executives are all under intense pressure to perform. Take the lead profile of New Orleans developer Joe Canizaro, which touches upon the rebuilding efforts unfolding in the Gulf region, not to mention Canizaro's dogged determination to breath life back into his ailing city. If his track record is any indication, the future of New Orleans' commercial development appears to be in good hands.

Another re-builder on this list is Mark Rose, formerly of Jones Lang LaSalle, who took over as Grubb & Ellis' CEO 12 months ago. While Canizaro is rebuilding an entire city, Rose is attempting to reconstruct a real estate services firm. Aside from Rose, the CEO of the world's largest privately held real estate services firm, Bruce Mosler of Cushman & Wakefield, also made the list. Both new CEOs have set the bar high during their first full year in command. Mosler, for example, grew Cushman & Wakefield's global revenues by 20% to $1.3 billion between 2004 and 2005.

Brokers and developers may occupy one-third of the list, but the balance is rounded out by one of the REIT industry's most respected buy-side analysts, an aggressive condo lender out of Chicago and a visionary leader in the structured finance markets, among others. If the grouping seems scattered among disciplines within the commercial real estate sphere, that's by design. If there's one thing that emerges after reading their stories, it's quite simply that the commercial real estate business of the 21st century is undergoing dramatic changes at all levels. And it's this diverse mixture of executives that is driving it into the next phase of its existence.

Seniors Housing Consolidator

Mark Schulte is leading the industry in aggressive expansion plays.

By Dees Stribling

If the wave of the future in the seniors housing business is consolidation, then Brookdale Senior Living CEO Mark Schulte isn't just along for the ride. More likely, he's one of the industry leaders behind that wave.

Last year, when the former Brookdale Living Communities Inc. merged with once-bankrupt Alterra Healthcare Corp., Schulte oversaw one of the seniors housing industry's largest consolidations. The combined unit formed Brookdale Senior Living Inc., and operates more than 380 properties with roughly 30,000 units.

Then, in late November 2005, Schulte led a lucrative IPO that saw about 6.2 million shares trade hands at an opening price of $23 per share, a 21% premium over the offering price. By year-end 2005, shares were trading at a 57% premium and the company had committed to a $0.25 per share quarterly dividend.

The goal of this activity is to set the stage for more consolidation, says Schulte. “The IPO allows access to additional and lower-cost capital, and that allows us to be an aggressive consolidator in the sector,” he says. “It's analogous to the hotel business of 20 or 25 years ago. The large companies came in and started to roll up the industry, and in many ways that's where we are in the senior-living sector now.”

For Schulte, “rolling up” is no idle expression. Since the late November IPO, for example, Brookdale has announced or closed on the acquisition of more than 9,000 additional seniors units for about $743 million.

An attorney by training, Schulte came to the seniors housing segment by the side door of multifamily development early in his real estate career, ultimately joining the seniors housing division of Chicago-based Prime Group in 1991. In 1997, as Brookdale Living Communities spun off from Prime, he was instrumental as the new company's CEO in an earlier IPO that took Brookdale public for the first time. Unsatisfied with the company's stock valuation, he took the company private in 2000.

It isn't clear yet how well the newly public Brookdale, two-thirds owned by Fortress Investment Group, will hold together. Predecessor firm Brookdale specialized more in upscale, independent living facilities, while Alterra was more of an assisted living player. Schulte characterizes Brookdale's mix of properties — a near-even share of independent and assisted living facilities, plus a share of the hybrid continuing care retirement communities (CCRCs) — as a competitive advantage.

“Our platform has to be broad geographically, and in terms of property type, to serve many types of customers and to take advantage of acquisition opportunities throughout the industry,” he says. “We also believe a broad base enables economies of scale to function more effectively.”

“Everything is happening very quickly, but it isn't a startup we're talking about here,” says Jim Moore, president of the Fort Worth-based seniors housing consulting firm Moore Diversified Services. “They've got a pretty solid foundation of properties.”

Perhaps even more important than Brookdale's mix of property types is the fact that its residents are still predominantly private-pay — nearly 98%, according to company estimates. If Brookdale manages to outmaneuver a thick field of competitors to buy private-pay seniors properties, it stands to benefit from the rush to consolidation in coming years.

“The merger made us the third-largest senior-living operator in the United States, but that's just part of a much larger picture,” says Schulte. “The industry's going rapidly from a fragmented one dominated by small providers and nonprofits to a recognized institutional investment class, and we want to be at the forefront of that.”

Mark Schulte

Age: 52

Company: Brookdale Senior Living

Title: Chief Executive Officer

Time in current role: 10 years

Biggest accomplishment: The growth of Brookdale

Short-term goal: To be the premier provider in the senior-living sector

The Comeback Kid

Mark Rose steers an embattled brokerage onto a new course.

By Parke M. Chapman

When Mark Rose became Grubb & Ellis' CEO last year, the real estate services firm was riding out a choppy stretch. High-level broker defections, de-listed shares and management shakeups were some of the challenges plaguing the Oak Brook, Ill.-based firm between 2001 and the end of 2004.

Only 12 months after taking the helm, however, Rose's five-year plan is coming together, as evidenced by a soaring stock price and growing recognition as a leader in the marketplace. While a strong sales and leasing market has dovetailed with his mission, sources credit Rose's charisma and vision as another driving factor.

“Grubb & Ellis' past is really irrelevant,” says Rose, who previously spent 13 years at Jones Lang LaSalle. “The company is strong, our financials are strong and if someone wants to focus on what happened in 2002, be my guest.”

Times have undoubtedly changed. Back in 2001, for instance, Grubb & Ellis installed former Ernst & Young consultant Barry Barovick as CEO. Barovick's attempt to re-align the brokerage along consulting lines backfired, sending many jilted brokers scrambling for the exits. Many did, in fact, jump ship, which further eroded Grubb & Ellis' bottom line.

“That was clearly a failed CEO experiment,” says Rose. “And that's all it was. Plenty of firms have dealt with this before.”

By 2002, when Grubb & Ellis (GBEL) was trading under $1 per share, Nasdaq de-listed the firm for falling below the $50 million value threshold. Then Barovick was forced out in March 2003, and his CEO slot would be vacant for another two years until Rose accepted a $2.1 million signing bonus to fill it.

Jumping forward to 2006, however, the financial picture is improving. Grubb & Ellis shares have soared more than 100% over the past 12 months and were trading at $10.90 per share as of Friday, Feb. 24. The firm reported net income of $7.2 million during the second half of 2006 versus $6 million during the same period in 2004. Total revenue for the fourth quarter hit $140.6 million, up 3.7% from the $135.6 million reported in the fourth quarter of 2004.

“We conducted an exhaustive search for a new CEO both internally and externally,” says Michael Kojaian, Grubb & Ellis' chairman and majority stockholder. “We felt we needed someone with proven leadership abilities, and I have complete confidence in Mark.”

Central to Rose's plan is a five-tiered model that offers corporate users tenant representation, facility management, project management, consulting and strategic occupancy planning services. Unlike his predecessor, Barovick, only 20% of this integrated model is consulting-based. So how does he expect these broader service lines to win business?

“We are building a national business for what the clients want, and it's part of this holistic approach to the business.” According to Rose, tenants and landlords are demanding varied expertise from their real estate service providers, and that will only accelerate in the near future.

That explains why Rose is aggressively adding to Grubb & Ellis' brokerage ranks. During the fourth quarter of 2005 alone, Grubb & Ellis hired 50 new brokers — and that was a fraction of the total he plans to add over the next four years. “Recruiting top talent in the industry is our number one priority, and I intend to double the size of this firm over the next four years,” he says. Grubb & Ellis employed roughly 1,500 brokers as of mid-February (that number includes affiliate brokers as well).

“We'll be concentrating on serving our clients better than anyone else over the next few years,” says Rose. “It's still the early stages, but we have a great team here and everyone wants to get to that fifth anniversary.”

Mark Rose

Age: 42

Company: Grubb & Ellis

Title: Chief Executive Officer

Time in current role: One year

Biggest accomplishment: Spearheading an integrated approach to client service

Short-term goal: Laying the foundation for a new Grubb & Ellis

From Broker to Builder

David Bossy is taking commercial development in the heartland by storm.

By H. Lee Murphy

For the better part of the last three decades, national retailers eying Chicago have found David Bossy to be their go-to man. He co-founded the Windy City's first major tenant representation firm, Mid-America Real Estate Corp., in 1984 and for the next two decades was instrumental in building it into the largest brokerage of its kind in the Midwest, with more than 100 clients ranging from Target to Kmart.

He started a development arm, Mid-America Development Partners, with attorney Michael D. Firsel in 2001 and was subsequently building shopping centers on sites ranging from the inner city to empty cornfields in exurbia. Deciding that development is where the action is, Bossy has now sold out his interest in his first firm and left brokerage behind for good.

Bossy has the prototypical 100-mile-a minute salesman's conversational patter, but also a deep sense of his clients' strategic positioning that has set him apart from the brokerage pack. It's a quality inherited from his father. Bossy grew up playing hockey in Montreal and briefly played as a pro. George Bossy spent his days as an independent tenant rep finding store locations for Canadian Tire and other chains. “As a young kid I went on the road with my dad, and he'd teach me about things like measuring shoppers' traffic patterns — lessons I still use today,” Bossy says.

In just the past five years as a developer, Bossy and Mid-America have been involved in nearly 100 projects spanning upwards of 15 million sq. ft. Most have been retail power centers, his stock in trade. Many have also involved joint venture partners such as the Chicago-based Daly Group. The deals are often sizable. In the south Chicago suburb of Bradley, for instance, Bossy is planning to begin construction soon on a 753,000 sq. ft. retail center, anchored by Kohl's, Petsmart and Wal-Mart, valued at $75 million.

Bossy once considered a move to California, but his wife, born in Chicago, would have none of it. He's never regretted the decision to remain in the heartland. “There is no better commercial real estate playground in the country than Chicago,” Bossy says. “We have prolific growth and a broad-based economy here. And there is still empty land available for sale.”

Mid-America is broadening its own repertoire. Bossy's latest preoccupation is hotels and hospitality — he's putting up 500-room Westin hotels in the suburbs of Wheeling and Lombard, both now under construction and costing $200 million or more each. He paid $47 million to buy the venerable Ambassador East Hotel in Chicago, with another $30 million slated for rehab work. The hotel partner is Harp Group Inc., which is expected to merge with Mid-America soon to facilitate more hospitality investing. The hotel sector has suffered from underinvestment for years, Bossy believes.

“Dave asks good questions and he's learned a lot about the hotel business in a short period of time,” says Peter Dumon, the president of Harp, who is seeking hotel opportunities outside Illinois for the future.

Even the retail construction is moving farther afield. Bossy is partnering with Equity Growth Group LLC of Bettendorf, Iowa, to build a 650,000 sq. ft. power center in Moline, Ill., 160 miles west of Chicago. “I have the local knowledge,” says David A. Smith, president and owner of Equity Growth. “Dave Bossy is the guy with the retail tenant relationships.”

Bossy's is a style that, whether in leasing retail space or building hotels, has proven adaptable. Says Peggy McNamara, a tenant rep who worked alongside Bossy for 20 years at Mid-America: “Dave is truly passionate about the real estate business, and that's what impresses clients more than anything else.”

David Bossy

Age: 52

Company: Mid-America Development Partners LLC

Title: Chairman

Time in current role: Five years

Biggest accomplishment: Mentoring retail brokers

Short-term goal: Making the move from retail brokerage to development

A Lending Juggernaut

Countrywide Commercial has bolted out of the starting gate, and it's only just beginning to hit its stride.

By Matt Valley

A household name in the home mortgage business has ambitious plans to corner the commercial real estate mortgage market. Countrywide Commercial Real Estate Finance, a direct lender that completed more than 420 transactions in its first year totaling some $5.9 billion, is on a mission to become one of the top five players in the industry.

Boyd Fellows, one of four executive vice presidents heading up Countrywide's commercial division and a 20-year industry veteran, believes the company's aggressive and creative culture will enable it to win plenty of deals. “In a short period of time we've assembled a dream team of bankers, underwriters, lawyers and traders,” says Fellows as he enthusiastically ticks off the list of talent Countrywide Commercial has managed to lure away from companies such as JP Morgan, CSFB, Bank of America, Citibank, Merrill Lynch and Lehman Brothers, just to name a few. Countrywide employs about 85 professionals and operates seven offices.

It helps that the fledgling commercial real estate unit is backed by an established brand name. Countrywide Commercial is a division of Countrywide Financial Corp. (NYSE: CFC), a diversified financial services company based in Calabasas, Calif., widely recognized as a behemoth in home mortgages. Countrywide Financial has a market cap of $21.3 billion and services $1.1 trillion in home loans.

Countrywide Commercial's sweet spot is fixed-rate deals ranging between $5 million and $75 million, although in 2005 about 25% of the loan volume stemmed from deals above $75 million. For example, Countrywide refinanced 63 hotels for Tharaldson Lodging Cos. in three phases for a total loan value of $248 million.

Countrywide Commercial also has rolled out a niche program for loans ranging from $1 million to $5 million. Closing costs are capped at $10,000 and loan documents are simplified.

The CMBS business has exploded exponentially in the last couple of years with domestic issuance soaring to $170 billion in 2005, but most of that growth has been in the larger loan category, says Fellows. “We believe that there is still a lot of opportunity in the small-loan space.”

Fellows is a CMBS pioneer. During the 1990s, Fellows was co-CEO of Nomura Securities' real estate lending subsidiary. Over a five-year period, he and his partners built the commercial real estate area of Nomura from a small division with 12 employees into one of the largest commercial real estate lending companies in the U.S. with over 450 employees.

But the Russian debt crisis in 1998 caused the CMBS market to collapse almost overnight. Suffering huge losses, Nomura Holdings announced at the end of 1999 that it was exiting the commercial real estate lending market.

Fellows says that some of the criticism heaped on Nomura stemmed from a misunderstanding of events unfolding in the bond market. He points out that for five years Nomura was lauded by the press and its competitors as a model company.

Today, Countrywide is a major player in the CMBS arena, evolving from a depositer — a lender that originates several hundred million dollars of loans and contributes them to a securitization pool — to a lead manager in the securitization process. Specifically, Countrywide Securities Corp. has co-led five CMBS transactions, totaling $9.9 billion, and co-managed another three transactions, totaling $5.8 billion. Countrywide has entered into an arrangement with Merrill Lynch to co-brand all of its CMBS deals.

That evolution is significant, says Fellows. “That puts us in even a stronger position to understand precisely how all the various “B” pieces (below-investment-grade tranches) and bonds will trade, which enables us to be laser accurate in our pricing. It allows us to win deals.”

Boyd Fellows

Age: 45

Company: Countrywide Commercial Real Estate Finance

Title: Executive Vice President

Time in current role: Two years

Biggest accomplishment: Recorded $5.9 billion in loan volume during the first full year of operation

Short-term goal: Become one of the top five firms in the commercial real estate finance industry

Expanding Empire

Jim Abrahamson leads Global Hyatt from full-service hotels into lucrative select-service segment.

By Robyn Parets

When Jim Abrahamson joined Global Hyatt Corp. in September 2004, the lodging industry stood up and took notice. Hyatt owns and operates 215 upscale hotels and resorts, branded as Hyatt, Hyatt Regency, Grand Hyatt and Park Hyatt. But when it came to franchising and operating select-service hotels, Hyatt had historically left that to its competitors. Not anymore.

Abrahamson, Global Hyatt's senior vice president of development and franchising, has been instrumental in helping the full-service hotel leader develop its strategy of owning, operating and franchising properties in the select-service segment. In essence, Abrahamson is steering the company outside its upscale comfort zone. “Part of my job is to help Steve Goldman [Hyatt's executive vice president and chief investment officer] form strategies for vertical integration. This also means focusing on select-service brands and franchising,” he says.

Abrahamson was formerly president of Baymont Inns and Suites, which was sold to La Quinta in 2004. In his four years with Baymont, Abrahamson led the company's branding and repositioning efforts. He also oversaw the chain of more than 200 owned, managed and franchised limited-service hotels.

Prior to joining Baymont, Abrahamson was senior vice president of Hilton Hotels Corp. and was responsible for developing and franchising Hilton's successful Hilton Garden Inn select-service chain.

In the last two years, Global Hyatt has certainly been busy. Its goal: to purchase leading select-service hotel brands to help immediately position the company in the segment. In January 2005, the company acquired the 143-unit AmeriSuites hotel chain from Prime Hospitality.

Global Hyatt also closed on its acquisition of the extended-stay Summerfield Suites brand from partnerships of The Blackstone Group, the Gencom Group and Lehman Brothers in January 2006. This deal includes 15 franchised hotels and six owned Summerfield Suites. These acquisitions followed Global Hyatt's purchase of U.S. Franchise Systems in 2000, which added the franchised, mid-market Hawthorne Suites and economy Microtel chain to the mix.

Hyatt officially changed its name to Global Hyatt last year and recently rebranded AmeriSuites as Hyatt Place and Summerfield as Hyatt Summerfield Suites. All told, Global Hyatt now owns, operates or franchises 752 hotels. Plans call for new brand prototypes later this year and a push to attract developers to the new Hyatt select-service brands, says Abrahamson.

“From a strategic standpoint, this makes a lot of sense for Hyatt. It is reaching down similarly to the way Hilton did with Hilton Garden Inn and Marriott did with Courtyard. Hyatt is finally branching out a bit and it is able to do so in an efficient way through the acquisition of AmeriSuites,” says Arthur Adler, CEO and managing director at Jones Lang LaSalle Hotels, a hotel advisory and brokerage firm based in Chicago.

“With the critical mass and the Hyatt name, the company can start franchising and growing the brand, says Adler, adding that Abrahamson has been instrumental in leading the company in this direction.

Unlike other franchised hotel brands, Global Hyatt still plans to retain ownership of a large portion of its select-service hotels. It currently owns 107 of the 146 Hyatt Place properties. With that in mind, Global Hyatt has a vested interest in the success of its new brands, says Abrahamson.

To that end, he is bullish on both the new Hyatt Place and Hyatt Summerfield Suites. “In five years I expect that we'll have close to 400 Hyatt Place hotels open or under construction and 150 Hyatt Summerfield Suites.”

Jim Abrahamson

Age: 50

Company: Global Hyatt

Title: Senior Vice President

Time in current role: 18 months

Biggest accomplishment: Global Hyatt's vertical integration into new market segments

Short-term goal: Creation of Hyatt Place and Hyatt Summerfield Suites brands

Breaking New Ground

Cushman & Wakefield CEO Bruce Mosler looks to the global playing field for fund management expansion.

By Parke M. Chapman

When Bruce Mosler became CEO at Cushman & Wakefield last year, his arrival dovetailed with soaring demand for global real estate. Property fundamentals from Japan to England were improving as record capital flows continued to flood the sector. Little has changed since then.

Rather than hitting cruise control, however, Mosler has made a concerted effort to push his firm into new directions such as net-lease REITs and fund management. He cites a simple reason for the effort: diversification.

“The flow of capital is increasingly global,” says Mosler from his midtown Manhattan office. “That's why we will develop a fund management business in places like Asia in the not-so-distant future. The vision is pretty simplistic. We want to be in the global playing field for fund management.”

So how does Mosler expect to challenge the likes of LaSalle Investment Management and CB Richard Ellis Investors, which manage a combined $49 billion in real estate funds?

Mosler says that both companies sponsor stand-alone fund management businesses that are separate from the brokerages. This is not the model he plans to adopt. “We will relate our fund management business back to our transactional business at the brokerage,” he says. "Our fund management business will benefit from the ability to get information from our brokers on real time market arbitrage and will help to create opportunities for our fund management investors."

One example is the office market in India, where Cushman & Wakefield claims to control as much as 40% of the transactional business for multinational clients. Mosler believes that Cushman's market knowledge, leveraged by strong relationships on both sides of the transaction, will allow the firm to direct capital into the best Indian property investments.

The question is how Cushman & Wakefield can accomplish this while maintaining its fiduciary responsibility to investors. After all, giant fund managers like CB Richard Ellis Investors are operated independent of the eponymous brokerage.

Simply put, fund managers are saddled with hiring management positions at the many properties they acquire. What the fund manager calls an expense, the real estate services firm welcomes as income.

The potential conflict, of course, lies in using the fund management business as a way to enhance the brokerage's core business. Mosler denies that this is the idea, but admits that it will take time to build.

“We do not have the lead at the moment,” says Mosler, referring to his nascent fund management business. “But capital is not in short supply.”

In 2005, for example, Cushman & Wakefield research found that global real estate investors poured $520 billion into commercial property. Roughly half was spent on U.S. assets, too. The latter inflow helped Cushman & Wakefield generate about 25% of its $1.2 billion revenues from multifamily sales last year.

Mosler cites the steep growth of multifamily commissions as another example of Cushman & Wakefield diversifying its capital markets business. In 2004, by comparison, multifamily sales generated roughly 1% of the firm's U.S. revenues. Mosler is also proud of Cushman & Wakefield's late 2005 foray into the net-lease REIT business on the unlisted side of the aisle.

The Cushman & Wakefield Net Lease Trust will buy the real estate of unrated or non-investment-grade companies through sale-leaseback agreements. Mosler says that this model will offer firms an alternate source of capital while also providing future investors with strong risk-weighted returns.

“This net-lease trust is an extension of our core business in many ways,” says Mosler. “And this is just another way that Cushman & Wakefield will become a more rounded, diversified company.”

Bruce Mosler


Company: Cushman & Wakefield

Title: Chief Executive Officer

Time in current role: 14 months

Biggest accomplishment: Cushman & Wakefield's 52% increase in profits year-over-year in 2005

Short-term goal: To continue diversifying the company by expanding its capital markets group.

CMBS Pioneer

Wachovia's Brian Lancaster, on the cutting edge of securitization, predicts another strong year of growth.

By Bennett Voyles

Like many of the top names in structured finance today, Brian Lancaster's life in commercial mortgage-backed securities (CMBS) began during what he calls “the fog and mist” of the first Resolution Trust Corp. deals of the early '90s.

Now a managing director at Wachovia Securities, Lancaster has seen CMBS evolve from a hothouse curiosity, engineered to clean up the savings and loan mess, into the financial equivalent of kudzu. Ten years ago, however, just 5% of all commercial real estate loans were securitized. Today, it's as high as 35% to 40%, says Lancaster.

In 2006, Lancaster predicts another strong year for CMBS, with more growth to come as real estate securitization makes inroads in Europe and Asia, and more CMBS borrowers and investors discover two new securitized products — collateralized debt obligations (CDOs) and credit-default swaps (CDS).

Borrowers can use CDOs as a cheaper alternative than a traditional line of credit, says Lancaster. They're also a more flexible form of financing than a CMBS deal. Unlike CMBS, where collateral is locked in for the duration of the issue, collateral in a CDO can be moved in and out of the deal over time. The product is growing very quickly: Introduced to the market only two years ago, last year issuance grew from $10 billion to $23 billion, and he expects more market growth this year.

The other new acronym on the block, CDS, will also prove popular, says Lancaster. The biggest draw: “Credit default swaps basically for the first time allow people to short CMBS, and to be able to short the real estate securities market” allowing them to buy protection against widening spreads, he explains.

While CDS should prove useful to the market, Lancaster says it will create some unfamiliar situations for CMBS investors. Whereas in a traditional CMBS structure, holders of the conservative AAA tranches could rest assured that the owners of the riskier “B” pieces were looking out for their collective interest, senior investors in the new CDO products may not have the same security. “It introduces a whole new element into the markets that we haven't seen before,” he says.

Despite the uncertainties, Lancaster predicts that these two products will be big this year, creating “a lot of new interesting opportunities and potential issues in the market.”

That might sound self-serving given Wachovia's outsized position in structured real estate finance, but Lancaster does have an eye for seeing potential early. In the mid-1980s, as an economist at the Federal Reserve, he worked on a report about the prospects for asset securitization at a time when the only asset-backed deals were federal mortgage loans. “We determined that structured products were actually going to be quite huge, and that it was going to be one of the major factors in the disintermediation of commercial banks,” he says.

More recently, the popular super-senior AAA tranche that Wachovia introduced to the market two years ago, came about after a conversation Lancaster had with an investor who said she would only invest in CMBS if she could get a tranche that had a 30% credit enhancement rather than the conventional 15%. “So I went back, thought about it, talked with the traders, and low and behold the super-senior 30% AAA was created,” he says.

Some investors' insistent on buying bonds that could withstand a 60% default rate on the underlying collateral might be seen as a bearish signal, but Lancaster is optimistic about the market. He says he is hopeful that a slow rise in interest rates this year “will cool some of the ardor in the market,” and lead to lending based on more conservative loan-to-value ratios and fewer interest-only loans.

Brian Lancaster

Age: 46

Company: Wachovia Securities

Title: Managing Director

Time in current role: Four years

Biggest accomplishment: Helping clients understand the real estate and bond markets

Short-term goal: Building a first-class research team at Wachovia Securities

One Agile REIT Observer

Michael Kirby and his loyal staff are leading Green Street Advisors through the modern REIT era.

By Bennett Voyles

One year after Green Street Advisors partner Jon Fosheim left to start his own hedge fund, co-founder Michael Kirby is standing pat. Given that Green Street's “buy” recommendations have grown 29.8% annually on average since 1993 with only one negative year (0.6% down in 1998), Fosheim's departure after 20 years alongside Kirby seems almost like a natural progression. But Kirby and company, apparently, are not tempted to follow.

Maybe it's because Kirby's buy-side research shop earns top marks for its REIT research in investor surveys year after year. Regardless of the reason, analysts rarely quit Green Street Advisors.

“I don't know a better business than the one we have,” says Kirby, 45, a principal and the firm's director of research. “We love our position in the world because the number of money managers out there seems to grow exponentially every day … yet there's only one [other] firm in the business that has said, ‘We're going to provide independent, objective research on REITs’ and has been doing it as long as we have.”

Simple economics suggest that Green Street should be having a harder time picking winners these days with Fosheim and all the other new money managers out there making the market more efficient, but it hasn't worked out that way.

“In theory, it should be [harder], but the key to Green Street has been keeping this crew together. With the exception of Jon's departure, we really have kept the same analytical team together for over 10 years now,” he says. Green Street also applies a lot of mass to the job as well: With 18 analysts, Green Street has more trained brains at its disposal than any other REIT research shop, buy or sell side, says Kirby.

So what does Kirby see unfolding in REIT land for 2006? Lower cap rates may be here to stay, predicts Kirby. “Today's cap rate regime is more the order of things to come as opposed to where we've been for the last 10 or 15 years,” he says.

Recent history backs up that assessment. Case in point: cap rates on office deals $5 million and higher that closed in January and February registered slightly lower than their year-end 2005 level, according to Real Capital Analytics. The average cap rate on an office sale was 7.1% at the end of 2005, but since then it has fallen down to 7%.

REITs look pricey now, Kirby concedes, with an average price to earnings ratio of 22 versus 15 for the S&P 500. Nor do yields compare favorably to bonds. Yet he argues that growing acceptance of real estate as an investment asset class by pension funds and retail investors may keep REIT multiples elevated. Kirby finds that REITs today are priced to deliver a long-term total return “somewhere in the 8.5% ballpark, and that's assuming some pretty modest long-term growth assumptions,” he says.

Hotels look particularly strong to Kirby. Supply is constrained and even shrinking in a few key markets like New York, and profits are set to grow. “Our expectations for same-property NOI [net operating income] is double-digit this year and a big number next year, whereas in more traditional real estate sectors, our expectation for NOI growth this year may be anywhere from, say, 3% in the retail space to 1% in the office space to as much as 5% or 6% in the apartment space.”

For that matter, says Kirby, hotel operators like Starwood or Hilton are bargains right now relative to other real estate companies. The multiples for an operating company are so much lower compared to a REIT that by buying a hotel stock, says Kirby, “you get a heavy dose of real estate ownership but you're able to buy into that real estate at a more attractive valuation than you can in, let's say, retail, office or apartment.”

Michael Kirby

Age: 45

Company: Green Street Advisors

Title: Principal

Time in current role: 13 years

Biggest accomplishment: The culture we've created, which makes people want to work here

Short-term goal: Aggressively growing our business

Coasting on Condo Loans

Bob Glickman doesn't lose much sleep over the $4.5 billion in condo loans he's made.

By Dees Stribling

Almost unprecedented for a bank with a $4.5 billion loan portfolio, Corus Bankshares didn't have a single loan go bad in 2005. Ditto for the year before that and for the entire decade leading up to 2004. The secret: While rival lenders are busy diversifying their portfolios to minimize risk, Chicago-based Corus makes virtually all its loans to a single category of borrower — condominium developers — who have proven to be the most financially diligent clients any banker could hope for.

For Corus President and CEO Robert Glickman, there's no mystery. Corus was active in the student loan market and residential mortgages in the early 1990s until bigger banks undercut its rates. Then it turned to hotel and office construction loans. “As markets changed, we evolved toward condos. That market has just been getting stronger and stronger.”

The proof is in the numbers, the executive adds. Competing banks have made acquisitions to stay on a growth path. Corus hasn't made any in the past decade, yet its assets have quadrupled in that span to $8.5 billion and profits have risen at a similar pace. Its return on assets, at 2.1%, runs far ahead of peer banks around the Midwest. Corus has grown 400-fold since Bob's father, Joseph Glickman, who at the age of 90 is still the chairman of the board, acquired the little single-office River Forest State Bank & Trust Co. in 1966. At that time, it had $20 million in assets, and began an expansion push and, later, a name change. Bob joined in 1971, after earning a degree from Cornell University, and has never worked any place else since.

When Corus first started lending to commercial real estate developers in the early '90s, its loans ranged in size from $250,000 to $4 million. Now the company won't look at anything under $20 million. The biggest: In January the company agreed to front the Trump Organization $171 million for construction of a 55-story high-rise with 445 condo units in Jersey City, N.J. Corus, which almost never sells its loans to syndicators in the aftermarket, took down the entire Trump loan with no co-participants.

Glickman, who concentrates Corus' lending in big-city markets like New York and Los Angeles, doesn't see much risk in such deals. “We look for markets where developers want to build and where residential demand is obvious.”

Marc Ehrlich, president and chief operating officer of Hallier Properties LLC in Las Vegas, is putting up three condo towers in the gambling capital ranging in cost from $155 million to $210 million. Corus made the construction loans on the first two towers in the past year and is a finalist to make the third loan, too.

“I may pay 50 basis points more for my loan from Corus, but that doesn't matter,” Ehrlich says. “With other banks I can't pick up a phone and talk directly to the CEO like I can with Bob Glickman.”

In New York, Veronica Hackett, managing partner of the Clarett Group, has had three condo projects in Manhattan financed by Corus. She deals with the bank in large part because it's more willing to extend non-recourse loans than other banks, an important issue in complex deals where mezzanine lenders worry about overleveraged borrowers.

“And besides, Corus is constantly in our marketplace. In fact, Bob Glickman and his talented staff probably know New York as well as, or better than, anybody who is headquartered here.”

If the condo market tanks, that may mean the entire U.S. economy goes into recession at the same time. “I won't be surprised eventually to see some condos going unsold and to see some loans default,” Glickman concedes. “But we have a strong balance sheet and we could have over $1 billion in loans go into default tomorrow and still cover the losses.”

Bob Glickman

Age: 59

Company: Corus Bankshares

Title: Chief Executive Officer

Time in current role: 25 years

Biggest accomplishment: Building Corus Bankshares

Short-term goal: Keeping Corus' zero default rate intact

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